Home > Uncategorized > If this is a wage-price spiral, why are profits soaring?

If this is a wage-price spiral, why are profits soaring?

from Dean Baker

That’s the question millions are asking, even if economic reporters are not. The classic story of a wage price spiral is that workers demand higher pay, employers are then forced to pass on higher wages in higher prices, which then leads workers to demand higher pay, repeat.

We are seeing many stories telling us that this is the world we now face. A big problem with that story is the profit share of GDP has actually risen sharply in the last two quarters from already high levels.

Baker Oct.

The 12.4 percent profit share we saw in the second quarter is above the 12.2 percent peak share we saw in the 00s, and far above the 10.4 percent peak share in the 1990s. In other words, it hardly seems as though businesses are being forced by costs to push up prices. It instead looks like they are taking advantage of presumably temporary shortages to increase their profit margins.

This doesn’t mean that some businesses are not in fact being squeezed. We are seeing rapidly rising wages for low-paid workers. That is putting a strain on many restaurants and other businesses that pay low wage.

That is unfortunate for them, but this is the way capitalism works. The reason we don’t still have half our population working on farms is that workers had the opportunity to work at higher paying jobs in manufacturing. If workers now have the option to work at better paying jobs, the restaurants that can adapt to higher pay will stay in business, but some obviously will not.

  1. October 17, 2021 at 9:40 pm

    thank you very much for this Dean Baker; in all the rising chorus around “inflation,” the state of American business profits has not been mentioned. The Biden administration has dispatched teams of their economists to address American supply chain bottlenecks in ports and trucking, but we have no presidential speech trying to beat back the “inflation boogie man” being used to beat back his $3.5 trillion dollar domestic package via the reconciliation process. (It’s an open question where he really is on it given the scope handed to Senator Manchin since Feb. of 2021)

    There is a lot of uncertainty in the economy, as the long interview of Ezra Klein of the New York Times and economic historian Adam Tooze reveals here: https://www.nytimes.com/2021/09/17/podcasts/transcript-ezra-klein-interviews-adam-tooze.html?.?mc=aud_dev&ad-keywords=auddevgate&gclid=CjwKCAjwk6-LBhBZEiwAOUUDp4ASl6V_kSMcFwhM8zGbD_tEUDBWzQ4kNpQk0sNqE2TYAsQl7h0UvRoCVr4QAvD_BwE&gclsrc=aw.ds

    However, Joe Biden has abdicated his presidency to the pretender from West Virginia, Joe Manchin, where it is everything but the kitchen thing thrown against the big Biden spending plan: it’s inflationary, it is not work oriented, creates dependency, isn’t means tested enough, is against fossil fuel workers…so in reality it is Manchin the 19th century pre-New Dealer vs the half-hearted Green New Dealer Biden, who has jettisoned the job guarantee, the $15 dollar minimum wage, any talk of labor’s desire for better organizing ground rules (the Pro Act) and on and on, and most recently, this weekend, Manchin has said that the heart of the green movement’s bid to remake the electric grid to prepare for wind and solar, is also off the table.

    If Biden hopes to salvage his program, he needs weekly fireside chats, one of which will have to put Manchin in his place as a coal baron Senator from a tiny state with under 2 million residents…who cannot be allowed to wreck a party’s program or national progress, but Biden is incapable of the one he most needs to give, much less a procession of persuasions.

    Right now on the left or the center, there is no one with the equivalent of Milton Friedman’s skills as a polemicist in the 1970’s for monetarism and supply side economics.

    Seeing Robert Reich interviewed (Friday night on CNN) by Erin Burnett, an alumnus of Goldman Sachs and consistent budget hawk, and flanked on the other side by a former Republican Governor of South Carolina named Sanford, I can only wonder where Dean Baker, Stephanie Kelton, James Galbraith or Adam Tooze were to even out the interview and the consistent CNN bias towards balanced budgets. MMT? What’s that? A new “mint” candy?

  2. Craig
    October 17, 2021 at 10:52 pm

    I completely agree that the messaging is inadequate and the media are clueless. Hell, I can’t even get you doinks here to engage on a policy that will not only affirm and enable MMT, but change the paradigms of economics, banking, money and debt. The Martians are laughing at our media and probably shaking their heads at Real World Economic Review Blog.

  3. Patrick Newman
    October 24, 2021 at 10:40 am

    In respect of ‘deficit’ management and sound money for CNN in the USA read BBC in the UK. The idea that deficits must be eliminated at all cost (through austerity) and ‘borrowing’ must happen and be paid back has an extraordinary resonance with large parts of the public who have been tutored well by the media and the BBC. As for MMT. It’s like sex and the Victorians – we do not talk about it!

  4. Ken Zimmerman
    November 1, 2021 at 8:51 am

    And explain to me again why private investors are allowed to exist much less be given a profit on their investments, and one that seems uncontrolled by any societally beneficial standards? This is cultural and societal suicide.

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